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SIDBI Ramps Up Startup Support Through Fund of Funds Operations

Small Industries Development Bank of India (SIDBI) as the principal financial institution for promotion and financing of Micro, Small and Medium Enterprises (MSMEs) has been addressing the gaps in the MSME ecosystem both directly and indirectly.

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India’s startup ecosystem is one of the fastest growing ones in the world with the third largest base, having more than 4200 startups (next only to UK and US). It is also becoming evident that the startups through their disruptive technology and business models are not only going to fuel the Indian economy for a higher growth trajectory, but also change the way of our living in several ways. Startup India initiative has the potential to help achieve the global growth ambitions of India.

Small Industries Development Bank of India (SIDBI) as the principal financial institution for promotion and financing of Micro, Small and Medium Enterprises (MSMEs) has been addressing the gaps in the MSME ecosystem both directly and indirectly.

SIDBI has over the years made concerted efforts at addressing the financial and non-financial gaps in the MSME space besides its refinancing and indirect financing role. The financial gaps which are being addressed by SIDBI are in the areas of Risk Capital / Equity assistance / Sustainable Finance to promote energy efficiency / cleaner production technologies, receivable finance, financing of service sector based on cash flows and other methodologies tailored to the needs of this sectors.

The Union Cabinet, in line with the startup action plan announced earlier, has yesterday approved the establishment of Fund of Funds operation with a corpus of `10,000 crore at Small Industries Development Bank of India (SIDBI) for contribution to various Alternative Investment Funds (AIFs) registered with SEBI, which would extend funding support to startups.

SIDBI recognized early that equity is one of the major challenges being faced by MSMEs, especially startups. Besides showcasing success of VC investments though its own subsidiary, SIDBI Venture Capital Ltd., SIDBI also chose to use contribution to various venture funds as an effective model as SIDBI contribution could be used by the Fund Managers to leverage larger amount of private capital and thus has been contributing to corpus of Venture Capital Funds over the years.

SIDBI has so far supported 95 funds, including 11 regional funds, with an aggregate commitment of `2576 crores. Based on drawl of around ` 1065 crores, so far from the above aggregate commitment, these funds have invested in 714 enterprises with an equity support of ` 9520 crores out of which ` 4794 crores were invested in 604 MSMEs.

It may be recalled that to ramp up support to startups through Fund of Funds architecture, India Aspiration Fund (IAF) was launched by the Hon’ble Finance Minister on August 18, 2015 with the corpus of ` 2000 crore to enhance the equity available to MSMEs. In order to bring in more professional outlook and design to have wider acceptance on fund operations, by all stakeholders, SIDBI has constituted a Venture Capital Investment Committee (VCIC) comprising of External Experts viz. Shri Mohandas Pai, Shri Saurabh Srivastava, Shri Sanjeev Bikchandani, Shri H.K. Mittal, Prof. Vaidyanathan and Shri Kiran Karnik, besides two senior officers from SIDBI. So far, an amount of ` 657 crore has already been sanctioned (after duly recommended by VCIC) to 20 Venture Funds out of which drawl has commenced in 11 funds.

To facilitate Venture Capital funds mobilise further resources and achieve early financial closure, SIDBI has also partnered with LIC of India as part of IAF to augment corpus support and formal MOU has also been signed between LIC and SIDBI.

Some of the seed / early stage Venture Funds supported by SIDBI are Bloom Venture, YourNest Angel Fund, Infuse Capital Fund, India Quotient Fund, India Innovation Fund, Ventureast Tenet Fund etc. SIDBI has also supported social venture funds such as Samriddhi Fund and Ankur Capital etc. Some of the successful ventures by these Funds include Littleye Labs (taken over by facebook), Aujas Network, Billdesk, Mitra Biotech, Skymet Weather, Zipdial (taken over by Twitter) etc.

Dr. Kshatrapati Shivaji, IAS, CMD, SIDBI in his statement added that the union cabinet approval for establishing FFS will help enhance the scale of operations under its Fund of Fund activities with a deeper engagement with startup ecosystem and boost ambitious Startup India initiative. SIDBI would be using its expertise built over the years and address major challenges being faced by startups in India at present. He added that under FFS an amount of ` 500 crore has already been released to the corpus in FY 2016 and ` 600 crore has been further earmarked for FY 2017 by the Government of India.

In line with the objectives of Startup India Action Plan and to accelerate its operations, the VCIC has considered proposals from 16 Venture Capital Funds for contribution under the proposed FFS. Out of 16 Venture Capital Funds, SIDBI has already committed ` 215 crore to 5 Venture Capital Funds with aggregate corpus of ` 2200 crore. Contribution to balance 11 Venture Capital Funds are under different stages of sanction, for sanction of ` 394 crore.

The VCIC is scheduled to meet next during the second week of July 2016 for considering proposals of another 10 Venture Capital Funds amounting to approx. ` 380 crores, which have startups funding as the investment focus.

The cumulative commitment including proposals in pipeline would thus aggregate nearly ` 1000 crore under FFS in such short span of time.

Dr. Shivaji added that SIDBI is the one of the major institutions in the country to offer Risk Capital products through mezzanine structures to growth stage startups and added that SIDBI has been constantly orienting and reinventing itself for bringing out product solutions for various needs of SMEs and its current focus is on stepping up its role in funding startups through its Fund of funds operations in line with national agenda (Startup India Action Plan).

As a major non-financial initiatives to strengthen the support systems for startups in the country, SIDBI has set up a match-making and collaborative online platform (www.sidbistartupmitra.in)  to link startups with investors, incubators, mentors, etc.. Over 730 startups and 56 investors have already registered since launch of the portal by Hon’ble President of India in March’2016 at Rashtrapati Bhawan. Incubators have received 42 applications from startups through the portal and out of 98 online requests, 29 startups have been picked up for the next stage by VC funds. The portal is also being used by the registered startups for free information exploration on areas of interest to them, including events and agencies of use.

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